Estonian company, equity and employment

[unexpectedsalmon]

Hi!

I've been doing some contract work for an Estonian tech company as a UK contractor as a PSC. They've liked my work and have offered me employment and shares in the business but as an Estonian employee, as they don't want to setup an UK Entity. I'm wondering what this might look like?

- Should I become an Estonian e-resident?
- Would the Estonian company take the tax out of my pay? - If not, how would this work and would there be any implications on double taxation?
- Could they setup an EMI scheme in the UK or what would be the most tax efficient way to handle this?

My current contract is outside IR35 and I could take shares on in other ways (through my own business, setup an Estonian business to receive them, etc)!

Any help would be appreciated as not sure the effort involved here...

[wattaj]

One thing to note: you will be taxed in the UK if you open an Estonian company and run it from the UK (i.e. you will still be resident in the UK for tax purposes.) It's not as easy as operating in Estonia and hoping to benefit from their lower tax rates.

Shame really; I like the Estonian set up.

Some reading for you: Estonia: tax treaties - GOV.UK

[Old Greg]

Hi!

I've been doing some contract work for an Estonian tech company as a UK contractor as a PSC. They've liked my work and have offered me employment and shares in the business but as an Estonian employee, as they don't want to setup an UK Entity. I'm wondering what this might look like?

- Should I become an Estonian e-resident?
- Would the Estonian company take the tax out of my pay? - If not, how would this work and would there be any implications on double taxation?
- Could they setup an EMI scheme in the UK or what would be the most tax efficient way to handle this?

My current contract is outside IR35 and I could take shares on in other ways (through my own business, setup an Estonian business to receive them, etc)!

Any help would be appreciated as not sure the effort involved here...

They don't have to set up a UK entity. Can't you just invoice them as normal from your UK Ltd and (assuming you are doing the work in the UK and living in the UK), pay personal and business taxes in the UK? Or do they really want an employee?

[Paralytic]

Hi!

I've been doing some contract work for an Estonian tech company as a UK contractor as a PSC. They've liked my work and have offered me employment and shares in the business but as an Estonian employee, as they don't want to setup an UK Entity.

They don't have to set up a UK entity. Can't you just invoice them as normal from your UK Ltd and (assuming you are doing the work in the UK and living in the UK), pay personal and business taxes in the UK? Or do they really want an employee?

Its pretty clear they want an employee.

[Old Greg]

Its pretty clear they want an employee.

Sometimes people don't use terms precisely so checking. And the is a contractor forum after all.

But if they want an employee and they don;t want to set up a UK entity and the OP doesn't want to move to Estonia, then something has to give IMO.

[Portent]

Would setting up an Estonian company via their e-residency process help at all?

What is e-Residency | How to Start an EU Company Online

[wattaj]

Would setting up an Estonian company via their e-residency process help at all?

What is e-Residency | How to Start an EU Company Online

Help with regard to what precisely?

[WordIsBond]

A UK resident can be an employee of a foreign company. You'll declare your income on your self assessment. You'll have to set up a Direct Payment scheme: National Insurance for people in the UK working where there is no employer in the UK

I doubt you can operate EMI with a foreign company, though maybe if the company is publicly traded? I don't know the rules on this, though. If not, then any shares / share options would have to be declared as employment income.

I obviously don't know anything about Estonian tax law but I'd be surprised, if you live and work in the UK, if you have to do anything in regard to Estonia, even if employed by an Estonian company. You certainly will have UK tax responsibilities if you live and work here. However, if the company is a foreign company there should be no employer NI. If Estonia has employer NI requirements (or something similar), it seems likely that the company will be saving that money in employing you. As such, you might be able to negotiate a better salary.

[Sub]

Hi!

I've been doing some contract work for an Estonian tech company as a UK contractor as a PSC. They've liked my work and have offered me employment and shares in the business but as an Estonian employee, as they don't want to setup an UK Entity. I'm wondering what this might look like?

As someone running companies in both of the countries, I can tell you that your working pattern (work done remotely, remuneration by invoice from EE company to UK company) is optimal and most hassle-free.

If you going to be an employee non-resident (from Estonian taxman view), generally your employment income is still taxable in Estonia (as it received from EE source). That potentially (depending on your working pattern) maybe overridden by EE-UK Tax Treaty (Article 15, section 1, see Estonia: tax treaties - GOV.UK). It is also taxed in UK due you being resident of the country.

You mentioning shares, which in case of you receiving dividends these will be taxed at ~26% (calc is bit more complex, but this is very close) in Estonia. This will be taxed at source at the moment dividend is allocated, so you will not even see this money. In addition to that you will pay (only ) 15% tax in UK on the full amount of foreign dividend received.

All above, is just a guess - I am not a tax professional. In general you will need to understand amounts and type of your future income, then speak with Estonian tax advisor (I would suggest you never use anyone in UK for that purpose, ask you client for reference) and UK tax advisor to understand every detail of the scheme and take-home amount, before making any commitments.

[unexpectedsalmon]

I think this is more that I am interested in the shares aspect but I'd need to be an employee to benefit from an EMI Scheme. I don't know how I'd feel if the Estonian company allocated my Ltd with shares, as I'd think the tax on that would be huge, no?

Say the company sold and I was given £250,000... that would be standard taxable income whereas I could be employed by them, set an EMI scheme up in the UK... etc.